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on Cognitive and Behavioural Economics |
| By: | Sandra Tavares Silva (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto); Aurora A.C. Teixeira (CEMPRE, Faculdade de Economia do Porto, Universidade do Porto) |
| Abstract: | The understanding of the economy's aggregate growth patterns is a fundamental objective of economic growth theorizing. However, the micro constructions are strongly linked to economic growth and so cannot be neglected in such process. This paper is concerned with this problem, proposing a formal mechanism to establish the bridge between macro regularities and micro evolutionary behavior. Within a micro to macro or bottom-up perspective, the adopted approach is focused in the influence of firms’ ‘institutional settings’ on economic growth and in the industry dynamics that lies behind more aggregate behaviors. The analysis associates such settings to firms’ labor choices in terms of hiring/firing policies and to their screening capabilities. Building a computer simulation model which deals with the nature and evolution of the knowledge that guides firms’ efforts to improve their institutional settings, we were able to draw some important implications. The results show that firm’s ability to change its ‘institutional setting’ is crucial for its survival. In a model without a learning mechanism the results show significant turbulence in terms of exit and entry of firms and no significant connection with the firm’s ‘institutional set’. In the LearnModel, the outcome is much more stable, with initial firms surviving for long period of time. Results also suggest that the presence of a learning mechanism is particularly striking in what concerns firms’ behavior and industry’s dynamics. The survival probability depends on firms’ hiring efficiency and on their ability to react to environmental changes. Since firms’ hiring efficiency and their learning rates depend on their accumulated non-routine workers, the results seem to imply some ‘lock-in’ paths. Firms with initial low values of relative non-routine workers have lower chances of survival. However, firms with initial high values of relative non-routine workers will survive if and only if they rapidly improve their hiring efficiency. |
| Keywords: | evolutionary, industrial dynamics, learning, labor decisions |
| JEL: | D21 D83 L22 M51 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:por:fepwps:227&r=cbe |
| By: | Charles Bellemare (Université Laval, CIRPÉE and IZA Bonn); Bruce S. Shearer (Université Laval, CIRPÉE and IZA Bonn) |
| Abstract: | The, often observed, positive correlation between incentive intensity and risk has been explained in two ways: the presence of transaction costs as determinants of contracts and the sorting of risk-tolerant individuals into firms using high-intensity incentive contracts. The empirical importance of sorting is perhaps best evaluated by directly measuring the risk tolerance of workers who have selected into incentive contracts under risky environments. We use experiments, conducted within a real firm, to measure the risk preferences of a sample of workers who are paid incentive contracts and face substantial daily income risk. Our experimental results indicate the presence of sorting; Workers in our sample are risktolerant. Moreover, their level of tolerance is considerably higher than levels observed for samples of individuals representing broader populations. Interestingly, the high level of risk tolerance suggests that both sorting and transaction costs are important determinants of contract choices when workers have heterogeneous preferences. |
| Keywords: | risk aversion, sorting, incentive contracts, field experiments |
| JEL: | J33 M52 C93 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2227&r=cbe |
| By: | Simon Grant (Department of Economics, Rice University); John Quiggin (Department of Economics, University of Queensland) |
| Abstract: | We formulate a dynamic framework for an individual decision-maker within which discovery of previously unconsidered propositions is possible. Using a standard game-theoretic representation of the state space as a tree structure generated by the actions of agents (including acts of nature), we show how unawareness of propositions can be represented by a coarsening of the state space. Furthermore we develop a semantics rich enough to describe the individual's awareness that currently undiscovered propositions may be discovered in the future. Introducing probability concepts, we derive a representation of ambiguity in terms of multiple priors, reflecting implicit beliefs about undiscovered proposition, and derive conditions for the special case in which standard Bayesian learning may be applied to a subset of unambiguous propositions. Finally, we consider exploration strategies appropriate to the context of discovery, comparing and contrasting them with learning strategies appropriate to the context of justification, and sketch applications to scientific research and entrepreneurship. |
| Date: | 2005–07 |
| URL: | http://d.repec.org/n?u=RePEc:rsm:riskun:r05_7&r=cbe |
| By: | Claudia Senik (Paris School of Economics, University Paris-IV Sorbonne, PSE and IZA Bonn) |
| Abstract: | This paper is dedicated to the empirical exploration of the welfare effect of expectations and progress per se. Using ten waves of the Russian Longitudinal Monitoring Survey, a panel household survey rich in subjective variables, the analysis suggests that for a given total stock of inter-temporal consumption, agents are more satisfied with an increasing time-profile of consumption: they seem to have a strong “taste for improvement”. |
| Keywords: | expectations, growth, subjective happiness, adaptation, panel data |
| JEL: | D31 D9 I31 Z13 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp2237&r=cbe |
| By: | Machiel van Dijk; MIchiel Bijlsma; Marc Pomp |
| Abstract: | What factors determine how well consumers make their actual choices with regard to financial products? This paper empirically evaluates two different choices consumers make when buying deferred annuities. One choice concerns the type of insurance policy, the other concerns the choice of insurance provider. For both choices we will analyse what factors explain the quality of the choice made. In particular, we will investigate the role of financial advice in the decision making process. By combining Dutch consumer survey data and data on quotations by Dutch life insurance companies, we obtain the following results. First, respondents who buy their policy directly from an insurer attain a significantly better match between their risk preferences and the type of policy chosen than respondents who purchase their policy through an insurance broker. Second, respondents who buy their policy through an insurance broker obtain a significantly lower pay-out than respondents who purchased their policy directly from an insurance company. These results raise doubts about the functioning of both the market for financial advice and the market for life insurances. |
| Keywords: | Financial advice; life insurances; choice behaviour |
| JEL: | D12 G22 L84 |
| Date: | 2006–07 |
| URL: | http://d.repec.org/n?u=RePEc:cpb:discus:66&r=cbe |
| By: | William R. Emmons |
| Keywords: | Consumer protection ; Education - Economic aspects |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlsp:2005-03&r=cbe |